Filing Chapter 13 bankruptcy means spending three or five years paying back your debts out of your disposable income. The amount you pay and the length of time you have to pay it hinge on how much you earn and how much you spend. Calculating your self-employment income accurately affects the amount you have to pay your creditors; calculating inaccurately could get your bankruptcy petition thrown out of court.

Current Monthly Income

Calculate your average monthly self-employment income for the six months before you filed bankruptcy. In some bankruptcy districts, you use your net income, after expenses, but other districts don't let you deduct expenses, raising the average. This is significant, because if your average income is above your state's median, you pay your creditors for five years; if it's below, you only pay for three. If you've had a major change that leaves your current income lower than your six-month average -- your business just folded, for instance -- bankruptcy judges can adjust your income figures accordingly.

Disposable Income

The bankruptcy court bases your monthly payments on your disposable income. To calculate that figure, add your self-employment income to any other income you have, then subtract living expenses and monthly debt payments for your mortgage, your student loans and other debts Chapter 13 doesn't wipe out. At this stage, you figure in your tax-deductible business expenses in calculating self-employment income. All your disposable income each month goes to your creditors.

Changes

Every month you're in Chapter 13 bankruptcy, you have to calculate your net cash income after expenses and taxes, and report the result to the court. You do this even if you use the accrual system of accounting for everything else. If your self-employment income drops to the point you can't make payments, you can ask the court to modify your payments. If your business becomes so bad you can't make any payments at all, request a hardship discharge, where the court terminates the plan early and wipes out your remaining debt.

Considerations

If your self-employment income isn't enough to pay your creditors more than they'd get if you liquidated your assets in Chapter 7 bankruptcy, the court may either require you convert to Chapter 7 or dismiss your petition. If your business is losing money or barely breaking even, the court may reject your bankruptcy, on the grounds you're paying your creditors less in order to devote your disposable income to your business. Before you pay the Chapter 13 filing fees, estimate your income and decide if the fees and paperwork will deliver the results you want.

About the Author

Author of two film reference books, "Cyborgs, Santa Claus and Satan" and "The Wizard of Oz Catalog." Published in Air & Space, Backpacker, Newsweek, The Writer, and multiple trade journals (can fax samples if requested, don't have them available digitally)